Could an NFL Strike Cause a Football Credit Crisis?

It's deadline time again for the NFL as the team owners and players stare in the face another expiration date.

Historically, the NFL has never lost an entire season to a strike. But its worth asking, from a credit-wise perspective, how long could the stadiums and teams hold out without having a negative impact on their credit?

I spoke with Jodi Hecht, director of Project Finance at Standard and Poor's, who recently ran analysis on this. At first S&P said if there was a work stoppage, the stadiums and teams could make their debt payments for as long as two years. They recently revised their outlook to one year. I decided to ask her why.

JH: We lowered the forecast because a federal judge ruled that the league/teams couldn't use the money from TV contracts to fund their operations. As a result, there would be less cushion to fund football assets.

Stadiums are typically legally separate entities from the teams. They each have their own revenue sources.

We have confidential ratings on NFL stadiums and we also look at the teams because they are a major tenant and we looked to see if they would both be OK if there was a work stoppage and in the short-term, we looked to see what kind of income they have—be it cash on hand, reserves and lines of credit, other sources of equity and contractual income.

In terms of contractually obligated income (COI) for the stadiums, it would be naming right contracts, advertising contracts, suites, club seats, things like that. Most of these contracts have usually have some sort of agreement where the suite holders will continue to pay as long as they receive a certain amount of events.

And they typically don't have to include football events, it can include other non-football events. For the stadium assets, their COI typically comprises somewhere between 50 to 80 percent of their total revenue so they will continue to receive that revenue even during a work stoppage.

Plus, in addition to that on the stadium side, these projects have reserve funds in case it has operating problems, market problems. These reserve funds can cover six months of debt service payments. Some of them can even cover up to one year. So between the cash on hand plus the COI's, the stadiums could last at least a year with a work stoppage.

LL: What about the teams?

JH: Between the reserves on hand from the $900 million in shared revenue, and obviously if they are not playing games they have a reduced expenses so when we looked at their assets, we think they should be OK as well for a year if no games were played.

LL: What about attendance?

JH: Attendance tends to come back between 2-5 years to reach or surpass the non-strike attendance of the previous year and we see that trend in all professional sports in the U.S. And the reason why it comes back is because the teams discount the tickets to get the fans back in the seats so what we see is while attendance bounces back, ticket prices may not come back as quickly.

For example, the NHL took two to three years for ticket pricing to go back to pre-strike levels.